Real Estate Terms

Abstract (Of Title)
A summary of the public records relating to the title to a particular
piece of land. An attorney or title insurance company reviews an
abstract of title to determine whether there are any title defects
which must be cleared before a buyer can purchase clear, marketable,
and insurable title.

Acceleration
The right of the mortgagee (lender) to demand the immediate repayment
of the mortgage loan balance upon the default of the mortgagor (borrower),
or by using the right vested in the Due-on-Sale-Clause.

Acknowledgment
A formal declaration before an authorized official (usually a notary
public) by a person who has executed a document, that he did in
fact execute (sign) the document.

Agent
A person who acts or has the power to act for another. A real estate
agent acts on behalf of the principal (the buyer or seller) and
has a fiduciary responsibility towards the principal. Buyer's Agent:
a agent who represents the buyer and owes fiduciary duties to the
buyer. Seller's Agent: an agent who represents the seller and owes
fiduciary duties to the seller. They are usually referred to as
the listing agent who is authorized by a property owner to find
a buyer or a tenant for the property.

Agreement of Sale
A written agreement of contract in which the seller agrees to sell
and the buyer agrees to buy under specific terms and conditions.

Alienation Clause
A clause within a loan instrument calling for a debt in its entirety
upon the transfer of ownership of the secured property. Also called
a "due on sale" clause.

Amenities
Features that enhance and add to the value or desirability of real
estate. Common amenities include swimming pools, professional landscaping,
gourmet kitchen and so on.

Amortization
The reduction of a debt over time by making periodic payments, usually
monthly, a portion of which is interest and a portion of which reduces
the outstanding amount of the debt. The monthly mortgage payments
remain the same over the life of the loan, even though the proportion
of principal to interest changes over time. In the early part of
the loan period the principal repayment is very small and interest
repayment is very high. At the end of the loan that relationship
is reversed.

Appraisal
An estimate of the value of property, made by a qualified professional
called an "appraiser".

Appraiser
Someone who practices appraisal. Appraisers' work involves appraising,
review (the process of critically studying a report prepared by
another), or consulting (the process of providing information, analysis
of real estate data, and recommendations on diversified problems
in real estate, other than estimating value).

APR - Annual Percentage Rate
The actual interest rate taking into account the points and other
prepaid fees expressed in annual percentage terms. Not to be confused
with initial interest rate, a teaser rate lenders use to get you
into a loan.

ARM-Adjustable Rate Mortgage
A loan that allows the interest rate to change periodically up or
down. The interest rate on an ARM is determined by adding a margin
or spread to a specified financial index. Financial indexes include;
Treasury, Certificate of Deposit,Cost of Funds. The margin is the
difference between the index rate and the ARM rate. Adjustment interval
is how often the interest rate is adjusted. A loan that adjusts
its interest rate after six months is called a six-month ARM. Rate
caps limit how much your interest rate can move up or down. Periodic
caps limit the change per adjustment period, and a lifetime cap
governs the maximum amount the interest rate can increase or decrease
over the life of the loan.

Assessment
A local tax levied against a property for a specific purpose, such
as a sewer or street lights.

Assessor
One appointed to assess property for taxation.

Assignment
A transfer or making over to another the whole of any property,
real or personal, or of any estate or right therein. To assign is
to transfer.

Assumption
The agreement between the buyer and seller where the buyer takes
over the payments on an existing mortgage from the seller. Assuming
a loan can usually save the buyer money since this is an existing
mortgage debt, unlike a new mortgage where closing costs and new,
probably higher, interest rates will apply.

Balloon Mortgage
A mortgage for a fixed term shorter than necessary to fully repay
the debt. As a result, the remaining amount of principal is due
at the maturity of the loan.

Blanket Mortgage
A mortgage covering at least two pieces of real estate as security
for the same mortgage.

Bond
An insurance agreement by which one party is insured against loss
or default by a third party. In the construction business a performance
bond ensures the interested party that the contractor will complete
the project.

Breach
Violation of an obligation in a contract.

Bridge Loan
A loan, usually short term, that finances the portion of the purchase
price not provided by the mortgage loan and the down payment. A
bridge loan is commonly used when a purchaser has not sold his existing
home before he closes on his purchase of a new home. The bridge
loan is paid off when the old home is sold, out of the proceeds
of that sale.

Broker
A real estate professional who has acquired a higher level of training
and experience than a sales agent. A minimum number of classes must
be taken along with passing a state exam to acquire a brokers license.
Generally they are a legal representative or a proprietor of the
office. Brokers usually charge a fee or receive a commission for
their services.

Building Code
A set of stringent laws that control the construction of buildings,
design, materials and other similar factors.

Building Line or Setback Distances from the ends and/or sides of the lot beyond
which construction may not extend. The building line may be established
by a filed plat of subdivision, by restrictive covenants in deeds
or leases, by building codes, or by zoning ordinances.

Buy-down
When the lender and or the home builder subsidized the mortgage
by lowering the interest rate during the first years of the loan.
While the payments are initially low, they will increase when the
subsidy expires.

Buyers Market
A market condition which occurs in real estate where more homes
are for sale than there are interested buyers.

Cash Flow
The amount of cash derived over a certain period of time from an
income-producing property. The cash flow should be large enough
to pay the expenses of the income producing property (mortgage payment,
insurance, maintenance, utilities, etc.)

Capital Gain
Income that results from sale of a capital (tangible) asset.

Capitalization
An appraising term used in determining value by considering net
operating income and a percentage of reasonable return on investment.

Certificate of Eligibility
The document given to qualified veterans which entitles them to
VA guaranteed loans for homes, business, and mobile homes. Certificates
of eligibility may be obtained by sending DD-214 (Separation Paper)
to the local VA office with VA form 1880 (request for Certificate
of Eligibility).

Chain Of Title
A history of conveyances and encumbrances affecting the title as
far back as records are available.

Closing
The end of the transaction when the seller hands over the title
to the buyer in exchange for payment. Also called settlement.

Closing Costs
Costs the buyer must pay at the time of the closing in addition
to the down payment which may include points, title charges, credit
report fee, document preparation fee, mortgage insurance premium,
inspections, appraisals, prepayments for property taxes, deed recording
fee, and homeowners insurance. Closing costs can vary considerably
from one financial institution to another.

Cloud (On Title)
An outstanding claim or encumbrance which adversely affects the
marketability of title.

Commission
Money paid to a real estate agent or broker by the seller as compensation
for finding a buyer and completing the sale. Usually it is a percentage
of the sale price: 4 to 7 percent on houses, 10 percent on land.

Condemnation
A declaration by governing powers that a structure is unfit for
use.

Conditional Sales Contract
A contract for the sale of property where the buyer has possession
and use, but the seller retains title until the conditions of the
contract have been fulfilled. Also known as a land contract.

Condominium or Condo
A condominium is a home in a shared building or development. The
buyer gets title the space inside the unit, shares the common areas
with other unit owners and pays a maintenance fee to the condominium
association to pay for needed maintenance, repairs and improvements
to the property.

Construction Loan
A short term interim loan to pay for the construction of building
or homes. These are usually designed to provide periodic disbursements
to the builder as he progresses.

Contingency
A condition that must be met before a contract is binding. Contingencies
include: the property must appraise for sales price or buyers approving
of various inspections.

Contract Sale or Deed
A contract between purchaser and a seller of real estate to convey
title after certain conditions have been met. It is a form of installment
sale.

Conventional Loan
A fixed rate and fixed term loan that is made without government
insurance.

Convertible Loan
Some ARM Color loans include a provision that allows it to convert
to a fixed rate mortgage at specific times, usually from the end
of the first through the fifth years. There is usually an additional
fee, $300-$500, to convert it.

Conveyance
The transfer of the title to land from one to another.

Co-operative or Co-op
In a residential co-operative, the buyer purchases shares in the
co-op corporation which is made up of the residents in the co-op
property. The buyer owns the shares rather than owning real property.
In exchange he has the right to lease and occupy a co-op unit.

Covenants
Agreements written into deeds and other instruments stating performance
or non-performance of certain acts or noting certain uses or non-uses
of property.

Credit Report / History
Lenders will investigate your credit record which is a history of
your debts. They get a report from a credit reporting agency (TRW,
Equifax, TransUnion) which shows if you pay you debts on time and
with who you have current debts with.

Debt-to-income Ratio
The ratio, expressed as a percentage, which results when a borrower's
monthly payment obligation on long-term debts is divided by his
or her gross monthly income.

Deed
A legal document by which property title is transferred from one
owner to another.

Default
Failure to meet legal obligations in a contract, specifically, failure
to make the monthly payments on a mortgage.

Depreciation
Decline in value of a house due to wear and tear, adverse changes
in the neighborhood, or any other reason.

Devisee
A person who receives real estate from another by will.

Down Payment
The down payment is the percentage of the purchase price that the
buyer must pay in cash and may not borrow from the lender. The down
payment amount in addition to the mortgage equals the purchase price
of a property. They can vary from 0% to over 50%. The less your
down payment the better your credit has to be. Lower down payments
generally result in higher interest rates.

Dual Agency
Representing both parties in a transaction. In virtually all states
it is unethical and illegal for a broker to represent buyer and
seller in a real estate transaction without written consent of both.

Due-on-Sale Clause
A provision in a mortgage or deed of trust that allows the lender
to demand immediate payment of the balance of the mortgage if the
mortgage holder sells the home.

Earnest Money
The deposit money given to the seller by the potential buyer as
evidence of good faith in purchasing real estate. The broker places
the money in an escrow or trust account until closing, when it becomes
part of the down payment.

Easement Rights
A right- of- way granted to a person or company authorizing access
to or over the owner's land. An electric company obtaining a right-
of- way across private property is a common example.

Economic Obsolescence Loss of useful life and desirability of a property through
economic forces, such as change in zoning, changes in traffic flow,
etc., rather than deterioration.

Encroachment
An obstruction, building, or part of a building that intrudes beyond
a legal boundary onto neighboring private or public land, or a building
extending beyond the building line.

Encumbrance
A legal right or interest in land that affects a good or clear title,
and diminishes the land's value.

Equal Credit Opportunity Act (ECOA)
Is a federal law that requires lenders and other creditors to make
credit equally available without discrimination based on race, color,
religion, national origin, age, sex, marital status or receipt of
income from public assistance programs.

Equity
The value of the property less the amount of unpaid mortgages and
any outstanding liens.

Escalation Clause
A clause in a lease providing for an increased rent at a future
time due to increased costs to lessor, as in cost of living index,
tax increases, etc.

Escheat
The reverting of property to the state in the absence of heirs.

Escrow
Money or other valuables given to a third party with directions
to deliver them to another party upon the fulfillment of a specific
act or condition.

Escrow Instructions
This discloses when the escrow should be closing and when possession
should take place, proration of property taxes, transfer taxes,
release of funds and the basics of satisfying the escrow demands.

Estate
The ownership interest of a person in real property. Also refers
to a deceased person's property.

Exclusive Agency Listing
A written agreement giving the broker the right to market an owner's
property for a certain period of time, but also allowing the owner
to sell the property during that period without paying a commission.

Exclusive Right - to Sell
A written agreemen Color t between the agent and the owner whereby
the owner promises to pay a fee or commission to the broker if his
property is sold during the listing period, regardless of whether
the broker is responsible for the sale.

Fair Market Value
That price a property will bring given that both buyer and seller
are fully aware of market conditions and comparable properties.

Fannie Mae - FNMA
Nickname for the Federal National Mortgage Association. FNMA is
a public corporation originally established by the federal government.
Fannie Mae purchases mortgage loans from lenders and results in
a major source of funds for mortgage companies.

Fee Simple
Ownership of title to property without any limitation, which can
be sold, left at will, or inherited.

FHA - Federal Housing Administration
Part of the US Department of Housing and Urban Development (HUD).
It was established in 1934 to encourage improvement in housing standards
and communities. The FHA insures mortgage loans.

FHA Mortgage Insurance
Requires a fee (up to 2.25% of the loan amount) paid at closing
to insure the loan with FHA. In addition, FHA mortgage insurance
requires an annual fee of up to 0.5% of the current loan amount,
paid in monthly installments. The lower the down payment, the more
years the fee must be paid.

Foreclosure
A legal process by which the lender or the seller forces a sale
of a mortgaged property because the borrower has not met the terms
of the mortgage. Also known as a repossession of property.

Functional Obsolescence
Loss in value due to out-of-date or poorly designed equipment while
newer equipment and structures have been invented since it's construction.

Ginnie Mae - GNMA
Government National Mortgage Association

Graduated Payment Mortgage - GPM
A type of flexible-payment mortgage where the payments increase
for a specified period of time and then level off. This type of
mortgage has negative amortization built into it.

Grantee
That party in the deed who is the buyer or recipient.

Grantor
That party in the deed who is the seller or giver.

Home or Property Inspection
A detailed inspection of the physical structure, the plumbing, electrical
and heating systems and the overall condition of the home. Typically
the cost is $150-$300 and the results are detailed in a multiple
page report.

Homeowners Insurance
Insurance that protects the homeowners from Casualty losses or damage
to the home or personal property and from liability damages to other
people or property. Homeowners insurance is required by the lender
and may be included in the monthly mortgage payment.

Home Owners Association
An association of homeowners within a community formed to improve
and maintain the quality of the community. An association formed
by the developer of condominiums or planned developments.

Housing Expense-to-Income Ratio
The ratio, expressed as a percentage, which results when a borrower's
housing expenses are divided by his or her gross monthly income.

HUD-The US Department of Housing and Urban
Development
Department of Housing and Urban Development, a government agency
created to make the American Dream of home ownership a real possibility
for everyone. HUD has many programs involving homeownership assistance
for low and moderate income families, community planning and development,
fair housing and equal opportunity, and home improvement loans.
The Housing and Urban Development home page is a rich resource of
information.

Impound
That portion of a borrower's monthly payments held by the lender
or servicer to pay for taxes, hazard insurance, mortgage insurance,
lease payments, and other items as they become due. Also known as
reserves.

Index
A published interest rate against which lenders measure the difference
between the current interest rate on an adjustable rate mortgage
and that earned by other investments (such as one-three and five-year
U.S. Treasury security yields, the monthly average interest rate
on loans closed by savings and loan institutions, and the monthly
average costs-of-funds incurred by savings and loans), which is
used to adjust the interest rate on an adjustable mortgage.

Initial Interest Rate
The initial rate quoted usually is a lower introductory rate, sometimes
called a teaser or discount rate. This lower rate lasts only until
the first adjustment, after which you will be charged the fully
indexed rate.

Interest
A charge paid for borrowing money.

Joint Tenancy
Joint ownership by two or more persons with right of survivorship.
Upon the death of a joint tenant, his interest does not go to his
heirs, but to the remaining joint tenants.

Jumbo Loan
A loan which is larger than the limits set by the FNMA and FHLMC
(more than $207,000 as of 1/1/96). Because jumbo loans cannot be
funded by these two agencies, they usually carry a higher interest
rate.

Lease
A contract between the owner of real property, called the lessor,
and another person referred to as the lessee, covering all conditions
by which the lessee may occupy and use the property.

Lease With Option To Purchase
A lease where the lessee has the option to purchase the leased property.
The terms of the purchase option must be set forth in the lease.

Legal Description
The geographical identification of a parcel of land.

Lien
A hold or claim on the property of another to satisfy an unpaid
debt or obligation.

Life Time Cap
Life time cap governs the maximum amount the interest rate increase
or decrease over the
life of the loan.

Listing Contract
An agreement between a homeowner and a licensed real estate broker
that authorizes the broker to market the property for sale during
a given time period.

Loan Origination Fee
A fee charged by the lender for evaluating, preparing and submitting
a proposed mortgage loan.

Loan-to-Value Ratio
The ratio of a mortgage loan principal to the property's appraised
value or its sales price, whichever is lower. Loan-to-value ratios
vary depending upon the individual lender's policy.

Lock-in Rate
A commitment made by a lender to make a mortgage loan at a specified
rate, pending loan approval, on or prior to a specified date.

Market Value
The highest price a buyer will pay for a property and the lowest
price the seller will accept in a typical market.

Margin
The amount a lender adds to the index on an adjustable rate mortgage
to establish the adjusted interest rate.

Mechanic's Lien
A lien created by statute on a specific property for labor or materials
contributed to an improvement on that property.

Mortgage
A lien on real estate given by the buyer to secure money borrowed
to purchase the real estate.

Mortgage Broker
An individual or company that obtains mortgages for others by finding
lending institutions, insurance companies or private sources to
lend the money. The mortgage broker may also handle collections
and disbursements.

Mortgage Insurance
A policy that provides protection for the lender in case of default
and or which guarantees repayment of the loan if the borrower becomes
disabled or dies.

Mortgage Insurance Premium - MIP
Insurance from FHA to the lender against incurring a loss on account
of the borrower's default.

Multiple Listing
A listing taken by a member of an organization of brokers, whereby
all members have an opportunity to find a buyer.

NAR - National Association of Realtors
The largest trade association in the country serving over 700,000
Realtors. The purpose of the association is to enhance the ability
and opportunity of its members to conduct business successfully
and ethically and to promote the preservation of the right to own,
transfer and use real property.

Negative Amortization
Occurs when your monthly payments are not large enough to pay all
the interest due on the loan. This unpaid interest is added to the
unpaid balance of the loan. The danger of negative amortization
is that the home buyer ends up owing more than the original amount
of the loan.

Non Assumption Clause
A statement in a mortgage contract forbidding the assumption of
the mortgage without the prior approval of the lender.

Notary Public
One who is authorized by federal or local government to attest authentic
signatures and administer oaths.

Note
A written instrument acknowledging a debt and promising payment.

Offer
A proposal to purchase real estate at a particular price, subject
to other specified terms and conditions. Acceptance of the offer
by the seller creates a purchase contract. A counteroffer is a different
offer made in response to the initial offer.

Plat
A map or chart of a lot, subdivision or community drawn by a surveyor
showing boundary lines, buildings, improvements on the land, and
easements.

PMI - Private Mortgage Insurance
Insurance issued to a lender to protect it against loss on a defaulted
mortgage loan. Its use is usually limited to loans with high loan-to-value
ratios, generally in excess of 80%. The borrower pays the premiums.

Point
An amount equal to one percent of the loan amount paid to a lender
for making the loan. A lender may charge the borrower several points
in order to provide the loan.

Power of Attorney
A legal document authorizing one person to act on behalf of another.

Prepayment
A privilege in a mortgage permitting the borrower to make payments
in advance of their due date.

Prepayment Penalty
Money charged for an early repayment of debt. Prepayment penalties
are allowed in some form, but are not necessarily imposed in many
states.

Primary Mortgage Market
Lenders making mortgage loans directly to borrowers such as savings
and loan associations, commercial banks, and mortgage companies.
These lenders sometimes sell their mortgages into the secondary
market such as FNMA or GNMA.

Pre-qualification
Getting pre-qualified for a loan is a free process and normally
takes between 15 minutes to an hour on the phone. The lender will
ask you some basic questions about your household income, time on
the job, credit history, down payment and personal savings. You
should get pre-qualified before looking for properties so you and
your real estate agent know in what price range to start looking.

Principal
One of the parties to a transaction. For example, the buyer and
seller are principals in the purchase of real property. Also the
amount of debt, not counting interest, left on a loan.

Purchase Agreement
An agreement between buyer and seller denoting price and terms of
the sale.

Rate Caps
Rate caps limit how much the interest rate can move up or down.

Real Estate Agent
A licensed person who works under the direction of a broker selling
and renting real estate.

Real Estate Broker
A middle man or agent who buys and sells real estate for a company,
firm, or individual on a commission basis. The broker does not have
title to the property, but generally represents the owner.

Realtor
A Realtor is a real estate professional who is a member of the National
Association of Realtors and subscribes to its strict Code of Ethics.
This professional is committed to protecting and promoting private
ownership of real property, establishing and maintaining high professional
standards of practice, and creating unity in the National Association
of Realtors organization and respect for the real estate profession.

Recision
The cancellation of a contract. With respect to mortgage refinancing,
the law that gives the homeowner three days to cancel a contract
in some cases once it is signed if the transaction uses equity in
the home as security.

Refinance
Obtaining a new mortgage loan on a property already owned.
Often to replace existing loans on the property.

RESPA
Short for the Real Estate Settlement Procedures Act. RESPA is a
federal law that allows consumers to review information on known
or estimated settlement costs once after application and once prior
to or at a settlement. The law requires lenders to furnish the information
after application only.

Restrictive Covenants
Private restrictions limiting the use of real property. Restrictive
covenants are created by deed and may "run with the land,"
binding all subsequent purchasers of the land, or may be "personal"
and binding only between the original seller and buyer.

Reverse Annuity Mortgage - RAM
A form of mortgage in which the lender makes periodic payments to
the borrower using the borrower's equity in the home as Satisfaction
of Mortgage: the document issued by the mortgagee when the mortgage
loan is paid in full.

Second Mortgage
A mortgage made subsequent to another mortgage and subordinate to
the first one.

Secondary Mortgage Market
The place where primary mortgage lenders sell the mortgages they
make to obtain more funds to originate more new loans. It provides
liquidity for the lenders.

Seller's Market
More buyers than sellers.

Shared Appreciation Mortgage - SAM
A mortgage in which a borrower receives a below-market interest
rate in return for which the lender or investor, receives a portion
of the future appreciation in the value of the property. May also
apply to mortgage where the borrowers share the monthly principal
and interest payments with another party in exchange for part of
the appreciation.

Special Assessments
A special tax imposed on property, individual lots or all property
in the immediate area, for road construction, sidewalks, sewers,
street lights, etc.

Survey
A map or plat made by a licensed surveyor showing the results of
measuring the land with its elevations, improvements, boundaries,
and its relationship to surrounding tracts of land.

Title
Ownership of real property. Title is transferred from one party
to another through a document called a deed.

Title Insurance
Protection for lenders and homeowners against financial loss resulting
from legal defects in or other claims against the property's title.
The cost of the policy is usually a function of the value of the
property and is often borne by the purchaser and or seller.

Title Search
An examination of municipal records to determine the legal ownership
of property. Usually is performed by a title company.

Trust
A property interest held by one person for the benefit of another.

Trustee
A party who is given legal responsibility to hold property in the
best interest of or "for the benefit of" another.

Truth-In-Lending
A federal law requiring disclosure of the APR-Annual Percentage
Rate to home buyers shortly after they apply for the loan. Also
known as Regulation Z.

Underwriting
The decision whether to make a loan to a potential home buyer based
on credit, employment, assets, and other factors and the matching
of this risk to an appropriate rate and term or loan amount.

VA or US Department of Veterans Affairs
A federal agency designed and operated to help veterans enter the
housing market. The VA assists veterans in terms of low or no down
payment, mortgage qualifications assistance and low interest rates.

VA Loan
A mortgage loan guaranteed by the US Department of Veterans Affairs
against loss to the lender and made through a private lender.

Variable Interest Rate
A fluctuating interest rate which can go up or down depending on
the going market rate.

Waive
To relinquish, or abandon. To forego a right to enforce or require
anything.

Wraparound Mortgage
Results when an existing assumable loan is combined with a new loan,
resulting in an interest rate somewhere between the old rate and
the current market rate. The payments are made to a second lender
or the previous homeowner, who then forwards the payments to the
first lender after taking the additional amount off the top.

Zoning Ordinances
The acts of an authorized local government establishing building
codes, and setting forth regulations for property land usage.